COMMENT | Voluntary arrangements into early retirement must be genuine

COMMENT | With declining business due to recession caused by global uncertainties, an employer may have no other choice but to make a substantial reduction in its workforce either by way of retrenchment or through a voluntary separation scheme (VSS).

The VSS is a voluntary arrangement reached between the employer and employee which has the effect of putting an end to the employee’s employment by providing him or her with a tangible inducement or reward for early retirement.

The selected employees are allowed to resign voluntarily from the company by receiving a fair severance compensation which is usually over and above the statutory minimum contained either in the Employment (Termination and Lay-Off) Benefits Regulations 1980 or the collective agreement to which the employees are the governed.

The VSS scheme introduced by the company will invite selected workers to submit their application and this means that the workers are making the offer to retire from the company.

The offer would then be open to acceptance or rejection by the employer on the basis of its operational needs and its need to retain key skills. When it is accepted by the company, a legally binding contract is thereby concluded and there is said to be a mutual agreement to bring the contract of employment to an end, which in effect is not a dismissal.

Like all other agreements, before the effect is given to a VSS agreement, the terms and conditions must be mutually and freely accepted by the parties, in order to dissolve the relationship of employee and employer. Thus, an enforceable contract would only come into existence upon acceptance of the offer by the employer and not when the employee volunteers.

It is important for the company to inform the employees selected for VSS of the need to reduce the current workforce in accordance with the requirements of the organisation’s operational needs.

Upon completion of the VSS exercise, if the company still finds a surplus in its workforce, the company may embark on retrenching the excess labour and this would include workers who were selected for the VSS but had declined the offer.

By the very nature of the scheme, it has to be on a voluntary basis without forcing the employee into retirement. This means that the company cannot harass, force, coerce or induce the employee to accept the VSS. 

Further, the VSS offer should not be used for any ulterior purpose, for example, removing the underperforming staff or replacing the existing staff with migrant workers.

In order to ensure that the VSS is genuine, the scheme must be offered to employees who have been advised that their position has been declared redundant and only after all redeployment, retraining, relocation or transfer options available in the organisation have been explored and eliminated.

It is further noted that an employee who accepted the retrenchment compensation under protest, will not be stopped from questioning the validity of his termination in the Industrial Court pursuant to Section 20(1) of the Industrial Relations Act 1967 and the court will not give effect to a purported mutual agreement which is not genuinely consensual.

Hence, when a representation under the above provision is referred to the Industrial Court, the onus of showing that it had not been voluntary or the employee was forced into signing the mutual separation, is on the claimant/employee.

The claimant must establish by cogent evidence that when the VSS application was submitted, there had not been a genuine consensus between the parties. In other words, at the time of the purportedly mutual termination, the employee's volitional capacity had been impaired.

ASHGAR ALI ALI MOHAMED is a law professor at the International Islamic University Malaysia (IIUM).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.